Archive for November, 2017

When dealing with a lawsuit alleging legal malpractice, one of the first lines of defense in Georgia is O.C.G.A. § 9-11-9.1, which requires that an expert affidavit be filed at the same time as the complaint. Not only does this statute require the affidavit to set forth specifically “at least one negligent act or omission claimed to exist and the factual basis for such claim” by a “competent” expert; it also comes with teeth,mandating dismissal for failure to state a claim under certain circumstances. While much attention is given toward subsection (e) of the statute, which addresses attacking defects in the expert affidavit, this statute contains additional provisions that provide strong consequences if the situation calls for the application of subsections (b) and (f) as explained below.

First, subsection (b) allows a complaint to be filed without the expert affidavit but only if (i) the complaint alleges that the required affidavit could not be prepared “because of time constraints,” (ii) the complaint is instead accompanied by the filing of an affidavit by the filing attorney, attesting that they were hired less than 90 days before the expiration of the limitation period, and (iii) an expert affidavit is filed within 45 days. The statute then provides that the court is forbidden from extending the 45-day deadline for any reason without consent of all parties and that “the complaint shall be dismissed for failure to state a claim” for failure to timely file either affidavit.

Importantly, dismissal is also mandated under this subsection if it turns out the law firm of the attorney who filed the affidavit “or any attorney who appears on the pleadings” was actually retained more than 90 days before the end of the limitation period. Therefore, in addition to the typical statute of limitation defense considerations as to when the applicable limitation period (2, 4, or 6 years depending on the particular allegations) was triggered and would run out for each claim asserted in the complaint, a key consideration should also be when subsequent counsel was retained in order to evaluate the possibility of a mandatory dismissal under subsection (b).

Next, subsection (f) provides that as long as a motion to dismiss raising the failure to file any affidavit required by the statute is filed with the answer, the complaint cannot be refiled after the limitation period’s expiry, even if voluntarily dismissed as is often done in an attempt to cure a prior failure to timely file any of the above affidavits. (It should be noted there is a narrow exception if the requisite affidavit actually existed at the time it was required to be filed but was not filed by mistake.) So if the circumstances fall within the realm of subsection (b), moving to dismiss at the same time as the answer could add finality to this statutory defense. For example, subsequent counsel may try to fall back on a voluntary dismissal to circumvent a defense meriting mandatory dismissal, perhaps because there is evidence they were hired before the 90-day period. By operation of subsection (f), the action would be dismissed as time-barred even if refiled with the requisite affidavit(s) after the applicable statute of limitation period passed.

While this statute is not limited to legal malpractice and applies to other enumerated professions, the affirmative defenses provided therein could be critical to obtaining an early dismissal with prejudice of a legal malpractice suit filed in Georgia.

If you have any questions or would like more information, please contact Jessica C. Samford at [email protected].

A name is just a name when it was found on the signature line of an arbitration agreement between a Tift County Georgia nursing home and one of its residents. A U.S. District Judge in the Middle District of Georgia rejected the nursing home’s request to enforce the agreement and move the litigation to arbitration under the Federal Arbitration Act (“FAA”). Why? Because the daughter that signed the agreement did not have the power to do so on her mother’s behalf.

A negligence suit1 against the nursing home was filed in state court following the death of the plaintiff’s mother at the facility. The case was removed to federal court and the defendant moved to have the case dismissed and to compel arbitration pursuant to the arbitration agreement that was signed at the time of the admission of the decedent. The defendant claimed that the FAA applied and preempted state laws that may say otherwise.

The court agreed that the agreement would have been enforceable under the FAA, that is, if it had been a valid agreement. However, in order to determine the validity of the agreement, the court looked to state law first. Upon the admission of the mother to the nursing home, the daughter signed the admission paperwork that included the arbitration agreement. Unfortunately for the nursing home, the daughter did not have power of attorney at the time. In addition, there was no evidence that the mother had given implied authority to the agreement as she was apparently not aware of its existence and was not present when it was signed by the daughter. These facts led the federal judge to determine that there was no valid or binding agreement between the mother and the facility and the pending litigation remains pending for a potential jury trial.

This could be a costly lesson for this particular facility and should be a valuable example for other long-term care facilities that have implemented arbitration agreements for this very purpose. It seems basic, but it bears repeating, make sure that a person signing an agreement, if not the resident, has the actual power to bind the resident. Contract law dictates that an enforceable arbitration clause must be valid between the facility and the resident. If the resident is not the signatory, put a copy of the power of attorney, or other rights-transferring legal document, in the resident’s file. If there is no such document, get as much evidence of implied authority as possible and follow up often until you get something official in the file. It could be the evidence that keeps your company out of a courtroom and in front of an arbitrator.

Plaintiffs would prefer to have the case before a jury where sympathy and emotion can be inflamed with strategic evidence presentation, including graphic photographs of the decedent. Indeed, the attorney for the plaintiff in this particular case is quoted as indicating that litigation often leads to fairer outcomes for his clients compared to arbitration. Reading between the lines, that generally equates to larger jury verdicts versus arbitration awards. He also indicated that state court allows for more “robust” discovery. As those of us that have dealt with these cases know, that typically means extensive, expensive discovery requests by the plaintiffs’ counsel in hopes of obtaining some discovery sanction from the court for alleged failure to respond. Arbitration can be much more focused and streamline the process. Bottom line, attorneys for injured parties prefer a jury.

The moral of the story is if you want a valid agreement, you must get the right binding signature.

If you have any questions or would like more information, please contact Shaun Daugherty at [email protected].

1. [Davis v. GGNSC Administrative Services LLC, case number 7:17-cv-00107, in the U.S. District Court for the Middle District of Georgia.]

California’s Fourth Appellate District has determined that “outside reverse veil piercing” may be a means of reaching a Limited Liability Company’s assets. In Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, the court held that a Delaware LLC could be liable for a judgment against the 99% owner of the LLC.

A corporation or LLC is considered a separate legal entity, distinct from its officers, directors, stockholders, or members. A fundamental benefit to forming a corporation or LLC is shielding the personal assets of the individuals from liability for the debts or actions of the company. However, where the corporate form is misused, a court may “pierce the corporate veil” and hold the individual liable for the actions of the company.

Conversely, reverse veil piercing occurs when a business entity is held liable for the debt of an individual. Outside reverse veil piercing refers to a request from an outside third party to satisfy the debt of an individual through the assets of a business entity of which the individual is an insider.

California courts apply two general requirements when deciding whether to disregard a corporate entity: “(1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.” Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300.

Up until now, California courts have not been receptive to outside reverse veil piercing. In Postal Instant Press, Inc. v. Kaswa Corp. (2008) 162 Cal.App.4th 1510, the court held that a third party creditor may not pierce the corporate veil to reach corporate assets to satisfy a shareholder’s personal liability.

Postal Instant Press remained the reigning authority on outside reverse veil piercing in California until the issue was revisited in Curci Investments, LLC v. Baldwin. Curci obtained a $7.2 million judgment against Baldwin personally. Curci motioned the court to add one of Baldwin’s investment LLCs, “JPBI”, as a judgment debtor, as he had been unsuccessful in collecting on the judgment against Baldwin. Curci argued that Baldwin held virtually all the interest in JPBI, controlled all of its actions, and used it as a personal bank account. The Fourth District Court of Appeal concluded that reverse veil piercing may be available under these circumstances and remanded the matter for the trial court to engage in the required factual analysis.

Curci is groundbreaking because it limits Postal Instant Press’s holding to corporations and opens the door for application of outside reverse veil piercing to LLCs. The Curci court held that the same factors used in evaluating traditional veil piercing cases should be applied to reverse veil piercing and concluded that “the key is whether the ends of justice require disregarding the separate nature of JPBI under the circumstances.” In so holding, Curci opens the door to further expansion of reverse corporate veil piercing in California.

A properly-formed and maintained business entity can prevent veil piercing.

If you have any questions or would like more information, please contact Kristin Ingulsrud at [email protected].

Last year, the Supreme Court narrowly avoided a collision with the question of whether service advisors at car dealerships are exempt as “salesmen” under the overtime requirements of the Fair Labor Standards Act (FLSA). However, as Encino Motorcars, LLC v. Navarro returns to the Supreme Court, the case is poised to squarely address this issue and, hopefully, provide much-needed clarity.

As previously discussed, the Supreme Court sent the Encino case back to the Ninth Circuit Court of Appeals to reconsider the exempt status of service advisors, instructing the Ninth Circuit to give no deference to the Department of Labor’s (DOL) regulations providing that service advisors were not exempt.

After considering the case on remand, the Ninth Circuit still held that service advisors do not fall within the FLSA’s exemption for “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” As a result, the Supreme Court will again consider the exempt status of auto service advisors and all indications are that the Court will resolve the discrepancy between the DOL regulations, the Ninth Circuit decision, and prior decisions by the Fifth and Fourth Circuits.

After a long road of uncertainty, many are hopeful that the Supreme Court will provide clarity when it finally resolves this issue. As the case is scheduled for oral argument in January, we will continue to monitor the case and provide an update of any developments.

If you have any questions or would like more information, please contact Will Collins at [email protected].

Georgia’s economic loss rule bars recovery in tort for economic losses arising from a contract. The idea behind the rule is that simple: When a dispute involves strictly economic losses, the parties should resolve their claims based on the standards set out in their contract and not judicially-created tort duties. The economic loss rule offers significant protection to design professionals, but a recent decision by the Georgia Court of Appeals signals further erosion of that protection.

In Atlantic Geoscience, Inc. v. Phoenix Development & Land Investment, LLC,[1] a residential developer hired an engineering firm to perform an environmental site assessment for a 45-acre property under consideration for purchase and development. The engineer’s report concluded that an adjacent landowner had encroached on and was using a small portion of the property as a “soil/stone storage yard,” but did not recommend any additional investigation. Relying on the report, the developer bought the property and began pre-development work.

During discussions with the adjacent landowner the following year, it came to light that the “encroachment” was actually a “landfill” that rendered the property not viable for development as originally planned. Business deals fell through, the developer was unable to secure financing, and the bank ultimately foreclosed on the property.

The developer sued the engineer for professional negligence, a tort-based claim. The engineer moved for summary judgment under Georgia’s economic loss rule which provides that “a contracting party who suffers purely economic losses must seek its remedy in contract and not in tort.” The engineer argued the developer did not suffer any personal injury and did not claim any injury to property or diminution in value; instead, the developer sought to recover the money it would have received had the development proceeded as intended, plus pre-development expenses (i.e., purely economic losses). Thus, the engineer reasoned, the claims were barred by the economic loss rule.

The trial court agreed with the engineer, but the Court of Appeals reversed, citing the “misrepresentation exception” to Georgia’s economic loss rule and holding that the case, at its core, involved the engineer’s alleged misrepresentation in failing to disclose the presence of the landfill. It was of no consequence that the alleged misrepresentation was made by the engineer in breach of its professional duties: “Georgia law permits the recovery of certain types of economic losses in an action, such as this, were the plaintiff alleges professional negligence resulting in a misrepresentation.”[2] The Court then sent the case back to the trial court to determine liability and damages.

The Atlantic Geoscience case is further evidence that Georgia’s economic loss rule does not insulate design professionals from the tort of negligent misrepresentation; thus, an allegation of misrepresentation can allow plaintiff to escape the rule’s operation. This can result not only in increased exposure to direct clients, but liability to third-parties who claim economic losses as a result of the design professional’s services. Against this backdrop, it is important for design professionals to understand how the laws of each state apply and utilize contractual provisions that help mitigate risk. For more information, contact Cheryl H. Shaw at csh[email protected].